Impact Investing: The Real Way to Make Bank and Make a Difference?

We’ve covered a few of those “alternate” paths outside of pure finance roles before – everything from working in the government to starting your own company to working in corporate finance at a normal company.

But governments can be corrupt (see: the European Union or the IRS), and even if you start your own company you’re still in it for profit.

What if you actually want to make a difference… but still use your finance skills… and do so without joining a non-profit and living like a pauper?

If that’s you, then you need to think about impact investing – the perfect way to combine finance and investing with saving the world.

Not a bad side benefit.

Today, you’ll hear about how our interviewee left the wonderful world of investment banking in Hong Kong behind to go apply her skills in a slightly more impactful way – and what working in the very new impact investing sector is like.

When in Hong Kong ECM…

Q: You mentioned that you had worked in banking in an equity capital markets role in Hong Kong. How did you get there in the first place?

A: Sure. I was born and raised in Hong Kong, and went to the UK for university. I applied to a lot of internships while there, but this was in the depths of the last recession and it wasn’t exactly the best year for the banking industry.

Still, I had good grades and a top school on my CV, so I won an offer at a bulge bracket bank in Hong Kong, started out as a generalist, and was then placed into ECM.

At the time, IPOs were all the rage in Hong Kong and there were more deals than my team could handle. So I ended up staying there for a few years, figuring that it was my best option if I wanted to stay at that bank in that region.

A: The teams in Asia were much smaller and the training was “dynamic,” which may seem “disorganized” at times.

As you might have heard, the hours are very, very long (or at least they were when I was there) because of the deal activity and the time zone differences we worked across.

The US team joked that they could call us at any time day or night, and someone would be here to answer the call.

My team was mostly people from mainland China and HK. In addition to ability and qualifications, language plays a huge role and they’re almost always looking for native Mandarin speakers who studied in the US or UK.

Affordable Housing: We might try to find investors or asset owners that are willing to accept reduced profits in exchange for making house more affordable, or in exchange for enhancing the community by providing other services such as healthcare. Sometimes owners actually come to us and say, “We own land/property – how can we make this more socially friendly?”

Micro-Finance Institutions that lend to Social Enterprises: We might invest in banks or other financial institutions that lend money to social enterprises to get them off the ground.

Environmentally friendly products and energy efficient technologies: There are “green funds” that only invest in companies that promote environmental sustainability.

Products and services geared toward the population at “the bottom of the pyramid” / underprivileged groups: Socially responsible businesses based in emerging markets and products designed for elderly and disabled groups belong to this category.

Another good example is a “social impact bond,” where the government raises money from banks and private individuals and ties the payout to the outcome of the organization that borrows the money.

Since the government is paying out bond interest, investors perceive it as “less risky” than investing directly in the organizations.

The government first came up with this concept in the UK, where it used these bonds to finance projects that would lower rehabilitation rates of ex-offenders.

They’re willing to do this because the private sector is taking on some of the risk in creating services that help everyone, which might ultimately reduce expenses for the government in the long-term.

Q: So what does the impact investing market look like right now?

A: Here’s how you can think of it:

Supply: The foundations, family offices, and high net worth individuals that want to invest in these enterprises (think: the Gates Foundation).

Demand: Social enterprises that are trying to grow and become financially sustainable, but which need capital to get there.

Intermediaries: They connect both parties and sometimes invest along with the foundations and family offices.

It’s a bit like the rise of tech start-ups and venture capital decades ago, and we’re seeing more and more “investment-ready” opportunities – so these groups actually need ex-bankers and other financial experts.

But the risk is still very high with these investments. It’s hard enough to create any type of financially sustainable business, let alone one that is also doing social good.

So you also see people involved with “capacity building,” which is sort of like what incubators do in the tech space – the idea is to get these earlier-stage ventures up to speed and advance to the point where professionals can invest in them.

Geographically, most impact investing is still based in the US since there are close to $1 trillion USD worth of foundation assets there (most of which is currently donated to charities and NGOs, instead of being invested in social enterprises).

Q: So based on all that, I’m assuming that investors are willing to accept lower returns in exchange for doing social good?

A: Sort of. On some of the projects I’ve seen, a 1-2% yield is an acceptable floor for investors.

But expectation management is a huge issue. We need to explain that to potential investors who walk in expecting 20-30% returns, which just won’t happen in this sector.

So part of our role is to manage those expectations and get them into more of a “Well, as long as I don’t lose money” mindset.

Q: Yeah, that’s a tough one for traditional LPs. Anything else you want to add or any recommendations for more reading on the sector?

A: The general consensus is that the industry is growing very quickly, even though it currently attracts less than $10 billion per year.

It’s very policy-driven, and you see a lot of initiatives in the UK such as Big Society Capital – an investment fund to grow financial intermediaries for the social sector – that have started due to government policy. Big funds such as the Social Innovation Fund launched by the US government also attract a lot of attention.

If you want to learn more, check out the JPMorgan report “Impact Investing 101,” where they predict that it will emerge as a real asset class. Some large banks are even hiring people with NGO backgrounds to work in this area.

Personally, I’m still a bit skeptical about the forecast growth in capital because the returns are unproven.

It’s also very dependent on government policy / funding and philanthropic money, which aren’t the most reliable sources in the current environment.

Making an Impact

Q: Ok, thanks for sharing all of that – now to get back into how you won the job after you had done all this research…

A: It all came down to networking. There were very few formal interviews, but a lot of quick coffee meetings asking about my background, how we might work together, and what they needed help with.

They never asked finance questions or anything like that – they assumed that since I had worked at a well-known bank, I knew all of that fairly well.

Part of it is also demonstrating that you’re actually interested in the field and are not just jumping in because it’s the trendy thing to do. I had spent a few months volunteering in India and China and had done other advocacy work in the UK before, so I fit what they were looking for.

Another big factor is proving that you can work in a small, entrepreneurial environment – a lot of people at big companies reach out to these groups, but they still carry the mindset of working in a huge organization and think you need to push all decisions through a committee before acting.

But that is not helpful in these places – it’s such a new field that you need to move quickly and figure out things on your own without much direction.

Q: So you just continued with all these networking meetings and won the offer without a formal interview process?

A: Pretty much – I did go into the office to meet with everyone toward the end, but it stayed very “fit”-focused.

They were mostly probing to see how well I meshed with the team and how committed I was.

Q: And is everyone else there also from the world of finance? Or where do they come from?

A: It’s a wide range. Many people who founded social enterprises or other intermediaries are here, but you also see quite a few MBAs from top schools and former bankers and lawyers joining as well.

The culture here is quite relaxed – there are experienced people, some with 2-3 years of experience elsewhere, and some who have “retired” after 20+ years working at corporations.

Since there’s such a range of backgrounds, it feels much different from the typical bank or investment firm where everyone is pushing ahead 24/7 and never takes their foot off the gas pedal.

Making an Impact On the Job

Q: OK, great. So you haven’t been working there for too long, but what are your early impressions of the job so far?

A: So far it has been great.

We do a bit of everything here – direct investing, fundraising, grants to charities, and even “capacity building” for non-profits and social enterprises.

A: Yes, we’re split into different divisions and a separate team focuses on the charity and advocacy work.

But the actual division of labor is less clear than you’d think because the two groups find ways to help each other out – for example, a social entrepreneur might start out by seeking a grant from us, but then when the business matures, he might seek a traditional investment from the other team here.

Q: And what do you look at when you analyze these investments? Are there different benchmarks for social investments?

A: Yes, there are some differences. For an affordable housing or education project, for example, we might look at:

What’s the percentage of single mothers living there? Has it been increasing or decreasing?

So far, I haven’t done much sourcing on my own – the senior people here are fairly high-profile and are able to bring in a lot of opportunities.

Q: Great. What has surprised you so far?

A: A while back, I worked on some analysis and created a presentation on several different social innovation funds to help our team prepare for a meeting with the government.

It was a very in-depth presentation backed with a lot of numbers, but then when I finished they asked me a simple question: “So what’s your recommendation? What should we do and how should we structure this new fund we’re considering?”

And I realize you started recently, but I have to ask this one anyway: what are your future plans?

A: I’ll stay for the foreseeable future – I’m still undecided about my long-term plans, but I’ve had a great time here so far and want to learn as much as I can.

Since this is such a new asset class, it’s hard to say exactly what I’ll do in the future – if it takes off and keeps growing, I might stay in the field for years; if it doesn’t catch on as quickly, I might consider other options, including going to a more traditional non-profit or NGO.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Thanks for the amazing article Brian! This touched my heart lots. I was wondering, if you have ever come across any licensed counselors or social workers that have worked in impact investing for a salary (obviously to support oneself)? Love how you spent time in my ancestral country India as I am happy to return to India or go to Nepal for work in impact investing. Please let know if you happen to have any contacts worth connecting with in these countries. Thanks!

I’m a graduate of a Tulane with a BS in Psychology and French, with a 3.6 GPA. I studied abroad in France during undergrad. I studied for an MA in European Political Economy at the College of Europe in Poland but did not complete it. I do not have a business background yet am passionate about social innovation and impact investing.

In 5 years I want to attend an MBA program with an impact investing focus (Duke, Columbia, Northwestern, etc.) In 10 years I would like to work at an impact investing firm.

I am about to complete a year of service in AmeriCorps at a nationally known non-profit in its development (sales) department. Given my education and background, what would you suggest:

1) working at a bank (even as a teller at first then climbing the ranks) while interning at a social venture fund and taking pre-MBA classes

1) is decent, I’d leave out working as a teller and try to gain experience on the buy-side or even directly working for an impact investing firm – even though you don’t have any experience in finance you can still try to land an internship/FT role at such firms

Interesting of the feedback you provided Thomas Nicole. Regarding what you said just now, what would you advise me personally even if I end up getting a local job that pays the bills as a teller in a local/regional bank?

Even if we have to pay bills and support ourselves in reality, what is something you would advise where I can still have a great foundation and useful experience for entering impact investing or some other social area for a living later even I get a job as and entry-level job as teller?

I’d try to gain some experience with impact/social responsible funds in your area while working as a teller. Of course, if you can get a paid role in the aforementioned role then I’d skip the teller role. Some companies may have remote projects so I’d contact some impact funds and see if you can help out remotely.

Hi Brian, thanks for this interview. I have 4 years of work experience in supply chain/analytical roles across 2 high tech companies in the bay area. I’m looking to move into a role that is focused on sustainability/social impact and was considering impact investing as an option. I have no finance background whatsoever. How can I prepare myself to move into this space? Thanks for your insights!

What about interning for a social venture fund? This may help. You will need to demonstrate your passion for sustainability and the environment. Of course, experience matters. However, I think most of the people who work at such funds are usually very passionate about making an impact. If you share similar passion and this shines in interviews, I think this will make up for your lack of experience.

I am a 15 year old Australian who wants to get into investment banking after university and your website is required reading for me. My plan was to go to the best university in my country (Melbourne) and then make my way into banking. I wanted to know though, could that get me into an American bulge bracket firm (GS, MS, JP etc.), giving the necessary credentials as well, or is that too ambitious. Is my best bet working for an Australian investment bank and then going for a top-tier American business school and then try and get a job in the US. The reason being because I really want to live in the States. I would love a reply and thank you for this site.

I’ll definitely need to assess my options, and yours and Nicole’s guidance is much appreciated. This site is so helpful because I can get a grasp of what I am really getting into and lose some of that naivety. One more question please: I do not want to sound money hungry, it’s just that seeing as American and Australian analysts work relatively the same hours at big BBs (assumption) I wanted to know if they are compensated similarly (I realize the different factors such as performance of the bank, and also the difference of the dollar). So, do you know anything about Australian BB’s salaries and bonuses (hypothetically if it has been a poor, solid, exceptional year etc.)? You might not know this or care about this but I can’t really find Australian salaries/bonuses online. I do not mean to write an essay, I apologize, but I am very eager for an expert’s insight/advice. Thank you once again.

Yes if you attend the best university and have solid finance experience yes you have a chance at American BBs in Australia and no that isn’t too ambitious. However, if you want to work for American BBs in NY its best if you spend a year studying abroad in the States (I’m thinking Stern or Columbia) so you can be in NY and network – get an internship and try to get an offer after. Alternatively, going to a target MBA will help because you’ll need a visa. Otherwise, you can always work in an American BB in Australia and transfer to NY (do it while you’re younger so you can explore and gain the experience in the Americas)

I’m sorry I did not include you in my comment, Brian was the only one who I saw responding. I also have to thank you on your work for the site, again it is vital for me. Those options are excellent and will definitely give me some thought. Indeed, the University of Melbourne has exchange programs to Stern and Columbia (thank you for being well-researched). I very much appreciate your response.

Now I read the full article. Excellent one and all best to the interviewee!
But now that European Union was mentioned, renewables and everything green is heavily subsidized, also social housing in some countries as well and investing into these can be very darn profitable with not much risk…

In terms of boutique banks, is it true that they pay quarterly bonuses instead of year-end like the bulge bracket banks? And also, is it gotta be really challenging for people to transition from boutique shops (regional boutique, NOT Jefferies/Evercore) to BBs later on?

If anything, boutiques would be more likely to push out bonus payments so they can save money and wait until the end of the year to decide… so no, I don’t think so and have never heard of quarterly bonus payments. Yes, it is hard to transition to larger banks later on but still easier than coming from a firm that is something other than an investment banking.

I have an interview coming up for an fixed income sales analyst, but Im not familiar with this interview process. I have previously bought the BIWS interview guide, will this be sufficient to prep for the interview? If not, are there any other BIWS courses or third party material you could recommend?

We don’t go in-depth into fixed income products in the guide since it’s more focused on IB. And they may ask about those topics, though the focus will probably be more traditional sales and markets questions.

I would actually start by reading up on the main fixed income products on Investopedia – there are a few S&T-focused guides but most are overkill for sales roles I believe. Here’s one offered by a guest author who has written for this site before:

Thanks so much for this post. I cannot tell you how remarkably similar my story is. I worked in ECM in HK in a top BB for over 2 years and was completely jaded with the quality of work and life ECM afforded to me as an analyst, and I was one of the odd hires in the region who spoke no Mandarin, so I ended up working on all the non-China deals (Southeast Asia, Korea and India). I am currently fighting to get an offer from a global NGO here in HK to be an analyst helping the NGO do small ticket (US$25m-40m) size investments in developing countries in Asia. Is it possible for the author to get in touch with me – I would love to bounce some ideas off you!

To anyone considering Impact Investing as a career, understand that it is maybe the single most difficult field in finance to break into. I had an informational interview with an Analyst at an impact fund and he said that the talent pool vying for these jobs is ridiculous- tons of jaded ex-bankers from the best schools vying for a veritable handful of positions. IIRC correctly, their 2 summer interns were both from HBS and working for free. This isn’t even a fund whose name you would recognize, btw.

Impact investing … Nice wording …
I work at International Finance Corporation, the private sector financing arm of the World Bank.
Would you put us in that category ?
Who else would be part of that club?

Thank you so much for this post! This is a branch of finance that I have been interested in for a long time but unfortunately, not one that there is a lot of information on. I’m going to be a junior this year and I’m hoping to break into IB for my internship next summer.
Can you give me an idea of salary levels in this industry? I’m sure there’s a reduction from pay at BB but I would be curious for a little perspective.
Thanks!

India and Africa: Not sure if there is much of a presence there, though I could be wrong. You might go there on some type of “in the field” assignment but I don’t know if many funds are based there. The US is much more developed and has more opportunities due to all the funds and initiatives mentioned here.

Actually, there are opportunities for some kinds of impact investing outside the US — Europe is actually much more enlightened in terms of understanding impact investing than the US is. LPs in the US typically (although this is changing) have a lot more difficulty understanding “triple bottom line” investing, than do LPs in Europe… US investors (typically) keep their charitable giving separate from their investment activities, whereas even large European institutional investors are willing to combine the two.

In terms of India and Africa, due to the large numbers of microfinance institutions, there are a number of local microfinance focused PE funds there (but not sure how difficult it is to get into that). If you look on the GIIN website, you will also find a semi-comprehensive list of influential impact investment players, many of whom have local presences in India and Africa.

We didn’t get into those because she had started fairly recently, but overall hours seemed pretty relaxed – maybe more than a normal job but less than typical banking / investing roles. 50-55 per week maybe? And they seemed flexible about working remotely and so on.

“Hours are typically 9-6 with some weekend activities, e.g. CSR volunteering activities that we organize for corporates and general public / media events that happen on weekends.

For pay, I cannot represent everyone but I think compared to banking it can range from a 0% to 40% pay cut in base pay (excluding bonus). It varies a lot between organizations and regions. Large NGOs such as the IFC or World Bank may pay similar to banking, and pay in the US will higher in general.”